In today’s global financial landscape, P2P lending is gaining a lot of popularity among loan borrowers especially in India. Apart from this, investors across different countries are considering P2P Lending as a good opportunity for high and safe returns. With multiple advantages, let’s take a look at some of the reasons why one must invest in P2P Lending:
People think that long term investments provide good interest rates as well as high returns. But in P2P lending you investment offers monthly returns and that too with attractive interest. So, when you become an investor, you play the role of a lender. Hence, you charge interest from the borrower. Thus it becomes a platform where you can earn good monthly earnings.
Moreover, unlike other investments; when a person invests in P2P Lending, they can even reinvest this amount back into more loans and further increase monthly returns.
With Peer-to-peer lending apart from earning monthly returns, one also gets the opportunity to earn high returns in less time. On the other hand, keeping money in bank for longer time provides you minimal returns. For example- saving account usually provide a rate of interest of approx. 4%. It means if a person puts Rs 1,00,000 in your account, it would grow to 1,04,000 at the end of one year, means a profit of just 4000.
On the other hand in P2P lending platform a lender can get returns between 20-30%. As per RBI norms, a single borrower-lender exchange should not be more than 50,000 in value. So the investment must be distributed to a minimum of 2 borrowers.
Assuming both borrowers take loans at 20% rate for 1 year. So, at the end of the year, a person will earn 11,162 summed from both investments. This return is less than 20,000, as you get repayments in the form of EMI. If you invest the EMI which you are getting every month, your returns would be much higher. Returns are higher in this case even though your complete Principal amount is not invested for entire duration. The main USP is that these are also much safer than all market-linked investments as they eliminate the volatility factor.
In many cases when a person lends money to any borrower, there are chances that he/she may not be able to return the money back with the interest to the investor. But in case of Peer-to-Peer lending, a lender can distribute your investments over multiple borrowers, so the chances of defaulting are far less.
For example: Let’s say a person want to invest 6, 00,000 in this platform. So they can distribute the money among several borrowers and even charge them different interest rates. Also, while borrowing money, it is advisable to cross-check all the details of the borrower.
Sometimes eyeing for high returns typically mean high risk. Investing in a P2P lending platform however provides much safety in these terms. For example, when a borrower files application for a loan, he/she is checked on various factors like credit score, employment details, financial details, borrower’s loan history, previous repayment failures (if any), debt to income ratio and education. With all these factors a lender can easily judge borrower’s ability to repay loan amount and safety attached with him.
It is quite obvious that asking for loan will never come to an end may be personal loans, home loans or any other kind of loans. Unlike equity and mutual funds, P2P lending is far less volatile and doesn’t involve keeping a tab on your portfolio. With its high returns and safety, investing money here is gaining a lot of momentum in current scenario.